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moneysense.ca, 20/07/06
The Income Tax Increase
I get paid bi-monthly and I recently received my pay stub for the first half of July. As you may recall, the Harper Government introduced a 1% cut in the GST starting July 1st and increased personal income taxes at the same time. Much ink has been spent debating whether the new tax cuts ultimately put more money in our pockets.
My recent pay stub reveals that starting July 1st, I am paying about $9 more per month in income taxes (assuming the company payroll department got the taxes right). So, I have to spend more than $10,800 per year in goods and services subject to the GST to be better off than before. A quick glance at our spending patterns indicates that we would probably make up the shortfall through savings in the GST. However, as many readers have pointed out, the government could have kept things simple by just cutting the income tax, rather than a hodgepodge of tax cuts.
moneysense.ca, 20/07/06
The thing you have to remember is that GST is a regressive tax and income tax is a progressive tax. (A regressive tax, as a percentage of income, becomes lower the higher an individuals income is. A progressive tax, as a percentage of income, becomes higher the higher an individuals income is.)
So, when you see a shift in policy like this (cutting the GST but raising the income tax rate), it signifies a change in beliefs or change in position that the government is taking.
Although the Liberals were in power for the last 14 years, they acted very much like a conservative party (effectively putting more money in the pockets of the rich). Now that the Conservatives are in power, they are acting more like liberals or socailists (putting more money in the pockets of the poor). See also the UCCB.
I disagree that the GST is a regressive tax because the GST is paid out of after-tax dollars. In any case, people with low or very low income receive a GST tax credit. The GST is a tax on consumption and every single economist has opined that income tax cuts are better than cuts to the consumption tax.
I also disagree that the Liberal tax cuts benefits the rich (I voted Conservative, so please don’t accuse me of being partisan). The Liberals cut the bottom tax bracket (on income below $35,000) from 16% to 15%. The problem with the GST cut is that you have to spend massive amounts just to get even with the tax savings achieved earlier.